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Deciding between a registered retirement savings plan (RRSP) and a tax-free savings account (TFSA) can be a complicated calculation involving tax rates, timelines and how one plans to use the funds involved. But for Canadian savers, the choices don’t end with simply prioritizing one account over the other.

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Strategizing about what kind of investments to put in each in order to maximize the tax benefits while keeping your overall portfolio in the right balance adds another layer of complexity.

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The key to deciding what should go where usually comes down to how each vehicle is taxed, said Colin White, chief executive and portfolio manager at Verecan Capital Management Inc.

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“The money you make in your TFSA is 100 per cent tax-free and the money you make inside your RRSP is going to be taxed in the future,” White said, noting that those using both accounts would thus lean toward the TFSA for equities and fixed-income in an RRSP.

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Martin Pelletier, a senior portfolio manager at Wellington-Altus Private Counsel Inc. and columnist for the Financial Post, is even more specific, suggesting that growth stocks in particular are better suited to the TFSA.

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“If you have the S&P 500, or even some of the (Magnificent Seven Big Tech) stocks, those are good names to hold within that TFSA,” Pelletier said. “It obviously depends on when you’re buying and the market conditions, but anything where you see any sort of market upside on the equity growth side, that should be within your TFSA.”

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That’s because, as White points out, you keep 100 per cent of the gains in the TFSA. The downside, of course, is that higher risk stocks can cost you as well.

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You can also use a TFSA to balance risk and growth, Pelletier said, outlining a strategy his company uses to capture the upside of equities during volatile markets while still protecting some or all of the capital on the downside.

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“What you want to do is harvest volatility and take more growth in your TFSA. And you can do that through rebalancing (during) market pullbacks, buying assets or investments when volatility expands,” he said. The protection in this case can come through structured note products.

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Structured notes are hybrid investment products tied to the performance of various underlying assets, which Pelletier said helps mitigate the downside while still making money.

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“These notes are taxed as income outside of a registered vehicle, so that’s why they’re an excellent instrument to use within tax sheltered TFSAs and RRSPs,” said Pelletier.

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As investors get older and closer to retirement, most will gradually shift toward taking volatility off the table, said Pelletier.

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“An RRSP is going to smooth your cash flows, it’s going to provide a predictable return … and then allow you to reinvest interest and coupons during periods of market distress,” he said.